November 3, 2013 / 11:16 PM / 4 years ago

FOREX-Euro struggles to find traction, Aussie eyes data

* Euro nurses losses after biggest weekly drop in over a year

* ECB meeting on Thursday key for common currency

* Aussie dollar eyes data dump, ahead of RBA meeting Tuesday

By Ian Chua

SYDNEY, Nov 4 (Reuters) - The euro languished at two-week lows early in Asia on Monday, having suffered its biggest drop in over a year last week as expectations grew the European Central Bank will be forced to cut interest rates to shore up growth.

After data last week showed a plunge in euro area inflation, a growing number of analysts including UBS and RBS reckon a rate cut could come as soon as Thursday’s policy meeting.

The euro last traded at $1.3490, not far off Friday’s trough of $1.3478. It skidded 2.3 percent last week to test chart support around $1.3460/80, a level that has held since late September.

“Although market expectations for ECB action have grown due to the weak inflation print, we think a December move is much more likely,” analysts at Barclays Capital wrote in a note, adding an unchanged rate setting on Thursday could lead to a knee-jerk bounce in the euro.

“However, we expect dovish rhetoric at the press conference from ECB President Mario Draghi to keep a December move in play. We would therefore recommend using any EUR rally as a better entry level to re-engage in EUR/USD downside.”

Against the yen, the common currency was at 133.25 , having fallen as far as 132.60 last week, its lowest in three weeks.

Pressure on the euro helped keep the dollar at six-week highs against a basket of major currencies. The dollar index was steady at 80.703, close to Friday’s peak of 80.785.

The dollar was little changed against the yen at 98.68 , within easy reach of a three-week high of 98.86 set on Friday.

Commodity currencies failed to gain traction against the buoyant dollar even after upbeat data out of China over the weekend.

Data on Sunday showed activity in China’s services sector expanded at the fastest pace in 13 months in October, offering further indications that the world’s No. 2 economy has stabilised.

The Australian dollar traded at $0.9448, struggling to pull away from Friday’s three-week trough of $0.9421. The Aussie’s immediate fortunes hinge on a string of economic data due at 0030 GMT, including retail sales.

The batch of data comes a day before the Reserve Bank of Australia holds its policy meeting. All 23 analysts polled by Reuters on Friday expect the RBA to keep its cash rate unchanged at a record low 2.5 percent.

Trading is likely to be subdued in Asia on Monday with Japanese financial markets shut for a public holiday.

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